What is a Business Term Loan? Meaning, Interest Rates, Eligibility & How It Works in India (2026)

Every business, whether small or large, needs timely access to capital to grow. There are times when your business may need extra funds to buy inventory, expand operations, pay suppliers, or cover short-term cash flow gaps.

A business loan provides financial flexibility. It allows you to manage working capital, invest in growth, and seize new opportunities – all without disrupting your existing reserves. For thousands of MSMEs across India, business term loan solutions have become a trusted source of financing.

This article explains what a business term loan is, how it works, its different types, eligibility requirements, and its interest rates.

What is a Business Term Loan?

A business term loan is a structured form of business financing where a fixed loan amount is borrowed and repaid over a predetermined period through regular instalments. They generally have fixed interest rates and set monthly payments. They are offered through banks, NBFCs, online lenders, and other non-bank alternative lenders. The loan amount is typically used for defined business purposes. Such a business term loan example can be a loan for expansion, machinery purchase, working capital optimisation, or infrastructure upgrades.

How does a business term loan work?

To understand how a business term loan works, the following steps are considered:

• The borrower applies for a loan amount based on the business requirement.
• The lender evaluates financials, credit profile, and eligibility.
• Funds are disbursed as a lump sum.
• Borrower repays the term loan for business through EMIs over the agreed tenure.

Estimated Interest Rate Range of Business Term Loans in 2026

Business term loan interest rates in India vary depending on several factors. Some estimated interest rates are detailed in the table below:

Note: These are some estimated interest rates. For the exact rate, check the latest updates.

Tenure of Business Term Loans in 2026

Business term loan tenure in India varies from 12 months to 10 years, depending on several factors. Some common tenures are detailed in the table below:

Eligibility Criteria for Business Term Loans

The business term loan eligibility depends upon various factors. Some of them include:

• Time in business: A two-year minimum is the common standard for many lenders, especially banks.
• Credit score: 700+
• Valid business registration
• Consistent bank statement history
• Stable annual turnover

Business Term Loan Repayment Methods

Business term loan repayment must be on time to maintain a good credit profile, avoid penalties, and ensure continued access to financing.

Repayment can be made via business term loan EMIs. Some lenders allow:

• Part-prepayment
• Full foreclosure

Prepayment terms may include charges, depending on the lender and loan structure.

Business Term Loan for MSMEs

A business loan for the MSME segment often uses term loans to fund capacity expansion, technology upgrades, or compliance-driven investments. Policy support and digital lending have improved access for MSMEs in 2026.

Advantages of Business Term Loans

Some advantages of business term loans include:

• Access to large sums of money to support expansion, scaling, or long-term growth plans.
• Longer repayment terms make high-value investments more affordable and manageable.
• Opportunity to build and strengthen business credit through timely repayments.
• Faster access to funds, with online lenders typically disbursing within a few days to one week.
• More flexible eligibility criteria compared to traditional banks, improving approval chances.

How to Apply for a Business Term Loan

If a business term loan aligns with your funding goals, you can apply by following these steps:

• Review Your Eligibility: Assess your credit score, yearly revenue, and how long your business has been operating. Lenders commonly use these factors to evaluate loan eligibility.
• Research and Compare Lenders: Choose the lender type that best fits your needs. While banks, credit unions, and SBA lenders may offer lower interest rates, their approval criteria are often more stringent.
• Gather Required Documents: After selecting a lender, organise and prepare the necessary paperwork to complete your loan application. Common business term loan documents required include business financial statements, business and personal bank statements, tax returns, and business legal documents.
• Complete and Submit the Application: As per the lender’s instructions, complete the application. Submit with all necessary documents.

Note: Choosing a business term loan from bank or NBFC depends on priorities. Banks usually offer lower interest rates, while NBFCs may provide faster processing and flexible criteria.

Business Term Loan or Short Term Business Loan?

Here’s a quick look at short term business loan vs term loan:

Conclusion

Understanding the structure, costs, and long-term responsibilities associated with a business term loan is essential before making a borrowing decision. In the current Indian lending environment, where credit assessments are increasingly data-driven and compliance-focused, informed borrowing plays a key role in maintaining cash flow stability and ensuring sustainable business growth. Businesses that clearly evaluate interest rates, repayment tenure, and repayment capacity are better positioned to use term loans as a growth enabler rather than a financial burden.

Selecting the right application platform is equally important. My Mudra functions as a digital financial marketplace designed to simplify the loan discovery and comparison process when applying for loans. By enabling borrowers to evaluate business term loan options from banks and NBFCs on a single platform, My Mudra helps improve transparency around eligibility requirements, expected interest rate ranges, and repayment structures.

For MSMEs and growing enterprises, My Mudra’s structured approach to eligibility assessment and documentation support can reduce uncertainty during the application process. In addition to term loans, the platform also assists businesses in exploring MSME-focused financing solutions, making it easier for borrowers to identify funding options that align with their operational scale and long-term objectives. This informed and comparison-led approach allows businesses to take the next step with greater clarity and confidence.

Also Read:
- Best Instant Short Term Loans in India 2026
- How to Get a Loan to Start a Business in India